Can Exchange Rate Volatility Influence the Export Positively? Evidence from Turkey Under the Regime Shifts

Faik Bilgili, Recep Ulucak, Mehmet Erkan Soykan and Selma Erdog˘an

Global Business Review, 2021, vol. 22, issue 3, 588-611

Abstract: One might claim that a researcher can estimate the impact of exchange rate volatility on exports, considering the regime shifts. Otherwise, the relevant estimation output might be biased. This article examines the possible impact of exchange rate volatility on export in Turkey by employing the monthly data for the period 2003M1 and 2015M4. To this end, the article develops a model based on the demand for the traditional long-term aggregate export in which the influences of volatility of exchange rate, domestic income level, foreign income level and ratio of foreign price to domestic price on the real export level are observed. The article (a) first reviews the relevant literature evidence, (b) then follows the preliminary methodologies of unit root test with structural breaks or break point tests through regime shifts (c) and later, estimates the cointegration coefficients of Hatemi-J regime switching models, dynamic ordinary least square (DOLS) and fully modified ordinary least square models to understand the behaviour of Turkish export in detail. The motivation of this article lies in two points. First, the article considers mainly the effect of exchange rate volatility on Turkish export by observing the possible existence of structural breaks and/or regime shifts. Second, the article follows both (C/S) regime switching model and (C/T) regime switching model, where (C/S) represents the model in which regime changes are observed in constant and in all regressors and where (C/T) denotes the model in which the regime shifts are estimated in constant along with trend of the Turkish export equation. The regime switching model (C/S) exhibits the positive effects of volatility, domestic income and price ratio (W/Tr) and negative impact of World income on Turkish export. The DOLS estimations support the (C/S) model outputs except the sign of price ratio. Eventually the article reveals that (a) the Turkish exporters appear to be risk lovers rather than risk-averse and (b) Turkish export should give more weight to MENA countries.

Keywords: Turkish exchange rate volatility; demand for export; regime shifts; structural breaks; inferiority of exported goods; risk lover-risk averse (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:22:y:2021:i:3:p:588-611

DOI: 10.1177/0972150918817393

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